Credit Score Meaning | The True Meaning Behind Credit Scores

Not many people understand the importance and true credit score meaning and why you need to treat it with care. Keep reading to learn more about the meaning of your credit score and how it can affect the rest of your life.

Credit Score Meaning
If you don’t know the true meaning of a credit score, now is a better time than any to learn about it. To understand your credit score meaning, you need to know the history behind it. Your credit score was developed by the Fair Isaac company and that is why you may have heard it called your FICO score. Oftentimes, it is misrepresented as your FICA score, but that is the incorrect way to refer to it.

This numerical value was assigned to each person with a social security number as a way to reference their credit rating. Think of it as a report card that you carry with you that assesses your risk. When we talk about your risk, it is more so the risk that financial institutions have to take when doing business with you. For example, if you were to go to the bank and are looking to get a home loan, the bank has to trust that you will pay that money back to them. In order for them to determine how much they can lend to you and what terms, they need to run an assessment of your chances of paying back the loan. Herein comes the credit score.

The credit score was developed as a universal and consistent method to determining this credit risk that financial institutions must make before dealing with you. That way all banks and all financial companies can have one method that they can all rely on. That is the history behind the credit score meaning.

Your actual credit score is a numerical value that ranges from 300 to 850, where the lower the score the worse you are positioned. The goal is to get as close to 850 as you can. Think of the number range as a bell curve. There are few people with scores of 300 and few with scores of 850 while most of the people have a credit score that lies in the median or middle ground.

In order to know more about the credit score meaning, you need to know the make up of your credit score. Most of your credit score is determined by how often you pay your bills on time and good you are about not missing any payments. Keep in mind that while building your credit score is a long and arduous process but it can be destroyed in a fraction of that time. That means that while it may take you years and years of making timely payments and never missing a bill, it can only take a few month’s worth of not being on top of your payments to screw up your credit score. The next factor that your credit score is determined is that length of your credit history. Just as trust is build over time and over the long haul, so is the relationship between you and your credit score.

It’s important to take away from this article about your credit score meaning that you can’t take your credit score lightly and need to be constantly working on improving it.